Libération

Humility in Economics

Is economics a science? Are there laws in economics as there are in physics? The answers to these questions, which divide economists as well as epistemologists, have important consequences not only for economics itself, but also for the role of economists in society. Take the following example: is it right to say that "An increase in the minimum wage necessarily leads to less employment for the least qualified workers"? The answer is straightforward: no.The so-called "law of the minimum wage" is an excellent starting point, not only because it has been at the centre of the recent [French] debate on low wages, but also because it is one of the very few proposals that can legitimately claim to be an "economic law". According to a survey, 90% of the economists believe in it. After all, isn’t it enough to remark that when the price of a given good rises, its demand diminishes? One could not find a more elementary economic truth. Unfortunately, David Card and Alan Krueger have observed through various North-American experiences of increasing the minimum wage that the employment level of the least qualified either remained the same or increased. They did not manage to find the negative effect predicted by the "law". Besides, those who have a bit of memory know that as early as in the late 1970s, Malinvaud had proposed a macroeconomic configuration which he baptised "Keynesian unemployment", in which "when wages raise, so does employment". How is this possible? The reason is that the economy is a complex web of interdependencies that does not allow us to predict the final outcome of a change in a single variable. A rise in interest rates may well lead to an appreciation of the national currency, but the contrary is just as possible. There are no universal laws in economics. Instead there is only a set of highly various mechanisms, such that when analysing a given situation it is necessary that we take into account economic conditions, institutions and specific histories. "Well, even so, one could say. Don’t we simply have to be more precise about the initial conditions in order to predict the final outcome?"Here, we face a second obstacle, even worse than the first one. Among the conditions that affect economic fluctuations, one must include the knowledge of the persons, their beliefs, and the way they understand their surroundings and justify their actions. As it happens, these beliefs, interpretations and justifications evolve and transform themselves continuously, because they are social objects. And this is because human beings learn and innovate - the future is never a repetition of the past. In the human world, what happened yesterday does not tell us what will happen tomorrow. Which model of the American elections could have predicted that the failure of some machines to punch little holes in ballots would be relevant? Similarly, economic competition constantly creates new and unpredicted situations.So what conclusion follows for the economist? Humility. In teaching, humility is called pluralism, confrontation with facts and other social sciences, and recognizing the three demands that one finds in the very interesting petition written by the economics students. In political terms, this means that no argument from authority is legitimate. This does not imply that the economist ought to remain outside the public debate. It simply means that the economist must involve him or herself as a citizen with convictions regarding the public good and ways of treating it, rather than as the holder of universal truth that he or she would substitute for discussion in order to impose it on us all.